India Opens the Gates to FDI in Retail

India's decision to allow foreign direct investment of up to 51 percent in "multi-brand" retail businesses could prove to be a significant positive development for the country's retail industry and the broader economy. As we argued here, the move is likely to benefit India's farmers (through supply chain modernization) and consumers (through lower prices, better selection of merchandise, and greater access to outlets with modern amenities). Recent research also suggests that suppliers could experience boosts to productivity and access to new export markets. And large domestic retailers could benefit from infusions of capital from foreign investors (as suggested by the jumps in some of leading domestic retailers' share prices just after the new policy was announced--see the article linked to in the first sentence above). Small-scale, mom-and-pop retailers are the constituency most threatened by, and fearful of, the new policy, but as this paper suggests, the threat that foreign-invested retailers pose to established domestic retailers may be overstated.

It appears that India will attach substantial conditions to proposed foreign investments in retail,  such as requiring large investments in infrastructure, sourcing of a certain percentage of merchandise from small businesses, and allowing the investments only in very large cities (again, see the article linked to in the first sentence above). These conditions could dampen the interest of foreign retailers, thereby attenuating the potential benefits of liberalization. More likely, though, many of the largest foreign retail firms will see the opportunity as too big to miss.

Interesting times ahead.

Price Controls Don't Work - the Evidence from Venezuela

"The law of supply and demand is a lie," said the chief of an agency that was set up to administer Venezuela's new system of price controls. Au contraire. As this article (the source of the regulator's quote) attests, the law of supply and demand is alive, well, and rapidly proving why price controls are not effective against inflation.  When the market price of goods exceeds the regulated price, people will hoard, supplies will run short, and prices will keep rising in the black market.

New research on the effects of multinationals' overseas activities on U.S. employment: request for your comments

Several colleagues and I recently published a working paper in which we explore the relationship between the overseas activities of U.S. services multinationals and employment in the United States, using some novel quantitative methods accompanied by case studies. We find that the effects of service firms' overseas activities on U.S. employment appear to be largely positive. But our methods are experimental, and we need feedback to make our work better. Your comments are heartily welcomed.

The table below (from page 14 of the paper) summarizes one of our main findings: that intrafirm exports of services by U.S. multinationals appear to be a significant supporter and creator of jobs in the US.